TUI Travel, owner of the British holiday companies Thomson and First Choice, shrugged off the recession and the impact of swine flu yesterday as it posted a surge in underlying third-quarter profits.

The package tour operator said its customers were still putting off booking winter holidays, with UK sales down by 21 per cent on last year, However, winter trade has picked up over the past four weeks and is down just 4 per cent year-on-year, with non-eurozone countries such as Turkey and Egypt still the favourite winter sun destinations.

TUI said the outbreak of swine flu in Mexico had knocked about £7m off its UK profits during the three months because it had to pay to repatriate customers, offer refunds or switch them to other destinations. While bookings to Mexico have risen by 27 per cent since TUI resumed flights there at the end of May, the number of Mexican holidays sold is down by 10 percentage points since last year. Bookings for UK charter holidays have picked up this quarter, reflecting the fact that Britons still regard their core summer holiday as sacrosanct. The most popular destinations include Turkey, Egypt, Cyprus, Greece, the Balearic Islands and mainland Spain.

TUI said its UK sales volumes were up 2 per cent since its last update on 19 May, although cumulative bookings for this summer had fallen by 12 per cent since its launched its brochures last year. While the group's UK holiday capacity was down by 16 per cent, it managed to increase the average price of its packages by 7 per cent.

For the three months to the 30 June, TUI's underlying profits were up by a better than expected 57 per cent at £102m, driven by £21m of incremental cost savings and robust trading in the UK, Germany and Nordic countries. Total sales fell by 1 per cent to £3.58bn over the period and underlying operating margins rose by 2.9 per cent.

Over the first nine months of the financial year, TUI reduced its pre-tax losses by 40 per cent to £411m, as sales rose by 2 per cent to £9bn.

Peter Long, the chief executive, said TUI was "well positioned" to meet its expectations for the year but warned: "We anticipate market conditions will remain challenging and expect the later booking pattern to continue in the next financial year. We will continue to maintain a high degree of flexibility in our business model to allow us to alter capacity in line with market conditions."